Creative destruction in economic growth

Abstract

The Royal Swedish Academy of Sciences awarded the 2025 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Joel Mokyr, Philippe Aghion, and Peter Howitt “for having explained innovation‐driven economic growth”. Mokyr's work explains why sustained growth was historically rare: prosperity required societies capable of generating, diffusing, and applying useful knowledge. The theory of creative destruction established by Aghion and Howitt explains why economic progress is inherently disruptive, as new technologies continuously replace older technologies, firms, and rents. In this paper, I argue that these ideas moved innovation from the periphery to the center of growth economics and recast growth theory as a dynamic process driven by experimentation, rivalry, entry, and reallocation. Recent research has extended these insights in numerous directions, including heterogeneous firms, business dynamism, talent allocation, artificial intelligence, and green innovation. I conclude by arguing that the central challenge of modern growth policy is not simply to accelerate innovation, but to sustain institutions that keep economies open to creative destruction while preserving competition, broad opportunity, and political support for technological change.